Tuesday, July 7, 2015

Self-directed IRA Fraudster

By Greg Wright, 
Certified Fraud Examiner
Certified Financial Planner™

Marcum Mug Shot
John Kenneth Marcum was recently charged with $6 million securities fraud.  He promised 37 investors returns as high as 20%, their retirement money was guaranteed, and would never be at risk.  Instead, he used client’s money to maintain a lavish personal lifestyle, a Mercedes and a five bedroom home near Geist. 

Marcum used a strategy currently popular with fraudsters.  He would arrange for investors to move retirement money into self-directed IRAs that allowed him to control the funds.  In effect, he moved their retirement nest egg into his personal checking account. 

The SEC recent reported an increase in complaints of fraudulent investment schemes that utilized a self-directed IRA as a key feature.  State securities regulators have investigated numerous cases where a self-directed IRA was used in an attempt to lend credibility to a fraudulent scheme.  The prospect of an IRA early withdrawal penalty often encourages investors to become passive with lesser oversight than another investment account might receive.

Even if a self-directed IRA is held by a legitimate custodian, it is responsible only for holding and administering the assets. The custodians generally do not evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters. Furthermore, most custodial agreements between a self-directed IRA custodian and an investor explicitly state that the self-directed IRA custodian has no responsibility for investment performance.  Investors are responsible for their own due diligence research.

In my “Don’t be a fraud victim” presentation to consumer groups, the first Red Flag listed is a “Self-directed IRA.”   

According to SEC records, Marcum is a former stockbroker with Merrill Lynch
Marcum 2010 Geist Home 
from 1996 until 2003 and then a co-owner of ProActiv Advisors, an investment advisor.  Records show that Marcum filed for personal bankruptcy in 2001.  Marcum Companies LLC was established in 2005 and Guaranty Reserves Trust, LLC was established in 2007.  John Marcum was the principal of both LLCs.  Neither firm appears to be a registered investment advisor or a regulated trust company. 

According to SEC filings, Marcum told investors that he could get annual returns between 10% to 20% and that their principal was “guaranteed” and would never be at risk.  He then placed notes issued by Guaranty Reserves Trust into IRA accounts.  These notes stated that they were “asset-backed,” “secured” and “guaranteed” with a “collateralized asset.”  Marcum also provided account statements to some investors that showed investment returns and asset allocations. 

In reality, Marcum lost money through stock trading activities, funding several start-up businesses including a bridal store, a bounty hunter television show and Carmel soul food restaurant.  None of those businesses appeared to have been profitable. 

Investors did not do their homework, ignored Marcum’s background, and lost control of their retirement assets. 

Some investors submitted redemption requests in 2013 and Marcum made excuses about why he could not make redemptions.  In one case he provided an investor with his personal net worth statement of $275 million; however, at that time, Marcum had virtually no assets or income.  All of the customer and personal bank and brokerage accounts were virtually empty.

In a recorded conference call with investors, Marcum admitted that his account statements did not accurately reflect the current value of their investments and he asked for additional time to recover their money. 

He made a bizarre promise telling those investors that he had a life insurance policy and, if he was unsuccessful in returning their money, he will kill himself.  In fact, according to the SEC, Marcum designated several investors as beneficiaries on his insurance policies and also increased the face amount of the policies. 

Equally bizarre, Marcum appeared in a September 2013 YouTube video:   “I am John Marcum....I refuse to be found until I make things right!  

WISH-TV Screenshot
Like many things Marcum has said, he was found before he made it right.  WISH TV investigative reporters found him in December 2014 where he acknowledged his bizarre 2013 YouTube video.  You can watch the WISH report here.  

Today, John Marcum appears to be very much alive.   He has not made it right and may be living with relatives until he joins other well-known Indiana financial fraudsters at McCreary federal prison at Pine Knot, Kentucky.  

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